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Question - Analyze the Cost

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Question - Analyze the Cost

A firm is choosing among three alternative bank loans.

The firm wishes to minimize the borrowing costs on a $200,000 borrowing.

Analyze the cost of each of these alternatives:

a. An 18% rate of interest with interest paid at year-end and no compensating balance requirement.

b. A 16% rate of interest but carrying a 20% compensating balance requirement. This loan also calls for interest to be paid at year-end.

c. A 14% rate of interest that is discounted, plus a 20% compensating balance requirement.

Reference no: EM132664668

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